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Lessons From Walkerton

Almost two years have passed since contaminated drinking water killed seven people and made 2,300 ill in Walkerton, Ontario. The tragedy called attention to severe deficiencies in water systems all across Canada. Consumers have been deluged with reports of their utilities’ failures to comply with regulations and to make desperately needed capital improvements.

Despite the unprecedented attention, remarkably little progress has been made in upgrading our inadequate systems. From the Yukon Territory, where giardia and cryptosporidium periodically contaminate Whitehorse’s water, to Ontario, where more than 400 adverse water quality incidents were reported in the last year, a steady stream of stories about inadequately treated water continues to flow through the daily news.

A January storm pushed turbidity in Vancouver’s Seymour reservoir above federal health guidelines for weeks, giving urgency to the standing order that people with weakened immune systems boil their drinking water. Vancouver’s substandard water is by no means an isolated case in BC. In his most recent annual report, the provincial health officer reported inadequate treatment in more than 300 small communities. "It is clear," he concluded, "that more can be done to… minimize our reliance on individual households boiling water as a de facto form of water treatment" (BC Provincial Health Officer’s Annual Report 2000, p. 15).

On the other side of the country, residents in hundreds of communities likewise face "boil water" advisories. A quarter of Newfoundland’s systems have been deemed vulnerable to contamination because of inadequate chlorination. Dozens of systems are contaminated with trihalomethanes, and still others with arsenic or other poisons. In January, one Newfoundlander summed up provincial residents’ justifiable frustration. Complaining to the government that it had kept under wraps for months the high levels of arsenic in local wells, he said, "We put our trust in government to make sure our water supply is clean. And you’ve failed us" (CBC News Online, Feb. 1, 2002).

Our governments’ wide-spread failure to protect our drinking water may be even more serious than generally thought. Extrapolating from US data on waterborne disease, University of Alberta ecologist David Schindler estimates that, here in Canada, contaminated water may cause 90 deaths and 90,000 illnesses each year.

If such estimates are correct, the associated costs would be staggering. In an analysis of the costs of the Walkerton tragedy, economist John Livernois identified $64.5 million in hard costs and an additional $90.8 million in the less tangible costs of illnesses suffered and lives lost. Such figures would pale in comparison to a calculation of cross-Canada costs.

Of course, the Walkerton tragedy and subsequent revelations about drinking water quality across the country also cost millions of Canadians their trust in their water systems. A national survey conducted in September found that one-third of Canadians have little or no confidence in their drinking water.

Why have our water utilities and the governments that oversee them let so many of us down? The problem lies largely in the fact that neither the systems’ owners and operators nor their regulators have the tools or incentives to ensure that our water is safe.

Too often, ill-trained workers struggle to operate inadequate equipment in underfunded systems. A municipal worker in North Battleford, Saskatchewan, said of the system that last spring made more than 8,000 people ill, "You’re running a lot of times by the seat of your pants" (Fluney, Testimony to the North Battleford Water Inquiry, Sept. 20, 2001, p. 144, lines 19-20). Such a description fits hundreds of systems across the country.

Even well run utilities often lack the funds to make critical improvements, thanks to tight budgets, limited borrowing capacity, and politicians’ long-standing reluctance to require consumers to pay the full costs of the water they use. In 1998, the Canadian Water and Wastewater Association estimated that we would need to invest $27.5 billion in water treatment and distribution systems over the following 15 years. As improvements are put off and water standards become tougher, our infrastructure deficit can only increase.

Only now are the public and politicians beginning to appreciate the high costs of cheap water. BC’s Drinking Water Review Panel concluded in February that consumers are paying too little for water. It proposed rates that reflect the true costs of the water supply system.

Late last year, the Ontario government introduced a bill that will require service providers to calculate the full costs of extracting, treating, and distributing water including the costs of improving infrastructure and to report on how they intend to recover those costs. The bill stipulates that regulations may specify permitted sources of revenue. If regulations require users to pay the full costs, the province will be well on its way to a more sustainable water regime.

Equally promising is the growing interest in the privatization of water utilities which in other countries may mean the sale or lease of water treatment systems but which in Canada generally takes the form of the contracting out of their operation and maintenance. Privatization has in many other jurisdictions helped solve problems similar to our own. It has encouraged enormous investments in infrastructure. It has brought water rates in line with costs. It has made available great expertise. It has boosted innovation. It has promoted efficiency. And it has improved regulation by separating responsibility for financing and operating utilities from responsibility for enforcing health and environmental standards. Freeing governments from the conflicts of interest that inhere in their multiple roles, privatization has enabled them to focus on their regulatory responsibilities. As a result of all of these factors, privatization has improved performance and brought greater compliance with health and environmental standards.

While Canadian experience with water utility privatization remains limited, it shows considerable promise. Canada’s largest private drinking water project can be found in Moncton, New Brunswick, where a firm operates and maintains the water filtration plant that it financed, designed, and built.

Prior to the plant’s construction, Moncton had struggled with discoloured, bad tasting, sub-standard water for many years. Unable to obtain provincial or federal funding for a water treatment system, the city turned to the private sector for help. In 1998, after a competitive bidding process that initially saw expressions of interest from nine consortia, the city signed an agreement with Greater Moncton Water, a company owned by USF Canada and the Hardman Group. The company offered considerable expertise: parent United States Filter manages over 260 facilities in North America and is a subsidiary of the French water giant Vivendi, which has operations in over 100 countries. Moncton is delighted to gain access to the company’s patented technologies, computerized systems, and resulting efficiencies.

Privatization brought immediate financial benefits to Moncton. The arrangement relieved the city of having to make any up-front capital investment. Equally important were the substantial cost savings. Greater Moncton Water built the plant for $23 million between $8 million and $10 million less than a publicly designed and built plant would have cost. Operating costs will also be lower than they would have been at a publicly- run plant. All told, the city expects to save between $14 million and $17 million in capital and operating costs over the course of the 20-year lease.

Moncton’s privatization also brought dramatic health benefits. The contract requires the operator to meet or, in some cases, exceed Canadian drinking water guidelines. Ron LeBlanc of the city’s engineering department has boasted, "We believe the water that we have specified will be the best in Canada," adding, "If they don’t meet the specs, then they ain’t getting paid" (Forster, Moncton Times and Transcript, Oct. 21, 1999).

Mr. LeBlanc’s comment highlights one of the greatest benefits of water utility privatization: accountability. In a publicly operated system, accountability is rare. Even Walkerton’s notorious Koebel brothers the operators who falsified records and drank on the job have thus far escaped punishment. In contrast, punishment comes swiftly in the private sector. As one water company executive explained, "People who jeopardize the company are not tolerated." Poorly performing firms are likewise held accountable, be it by the municipalities with which they have contracts, by their shareholders, or by a marketplace in which a tarnished reputation may prevent them from winning other business. Such mechanisms provide powerful incentives to perform well.

Despite its many benefits, privatization continues to meet strong resistance from some quarters, most notably from labour unions. Some of the unions’ concerns especially those regarding the staffing cuts made possible by the private sector’s more efficient operations may be addressed by contract provisions protecting workers’ interests.

Other issues, such as the reluctance to trust something as essential as water to a profit-driven firm, must be countered with a close look at reality. Public institutions brought us the tragedies in Walkerton, North Battleford, and the hundreds of other communities whose water has been poisoning people. Those institutions, with their inherent problems of politically constrained funding, insufficient performance incentives, and compromised oversight, have served us poorly. In contrast, private firms have demonstrated that they can deliver clean, safe water. Properly structured agreements give them the tools and incentives to do so.

Elizabeth Brubaker, Executive Director of Environment Probe, is the author of Liquid Assets: The Privatization and Regulation of Water and Wastewater Utilities, which will be published by the University of Toronto’s Centre for Public Management later this year.